No one needs to tell me that Facebook (FB, Financial) is valuable. Sure, it’s valuable for game players and time wasters, but I don’t fall into either of those categories, and for a long time I resisted joining Facebook precisely because, frankly, I thought its appeal was limited to people who are younger than I am.
Not long after I opened my account five years ago, though, I was inundated with “friend requests” from people who had been my classmates in high school and college, but we had lost touch many years before – and I learned what Facebook’s real value was. It was great to reconnect with these old friends, many of whom I never expected to hear from again.
Sadly, some of my friends have passed away since that time, but I will always be grateful to Facebook for allowing them back in my life, however briefly. I could never put a price on that.
A couple of years ago, Facebook tried to put a price on its worth in the marketplace with its May 2012 IPO. I won’t use this space to rehash what happened; suffice to say, what began as one of the biggest IPOs in history ended up being labeled a “fiasco” by the Wall Street Journal.
Facebook has come a long way since then. After opening at $38 a share in 2012, the stock went into free fall. Three weeks after the IPO, shares were selling for $27.10. That was then; this week, Facebook shares sold for more than $75 a share.
What is the difference? Mobile advertising revenue, which was a financial riddle Facebook hadn’t solved by the time of its IPO in 2012, and some analysts faulted it for Facebook’s shaky start – but Facebook may have solved that now.
In July, Facebook reported second-quarter sales went up more than 60 percent to $2.91 billion – with mobile advertising responsible for 62 percent of the increase. Since that time, the stock’s value has risen nearly 10 percent – to $77.30.
That made Facebook the 22nd-largest company in the world – behind Verizon Comunications Inc. (VZ, Financial) and ahead of Toyota Motor Corp. (TM, Financial).
In its second-quarter earnings report, Facebook reported that more than four-fifths of its more than 1 billion active users have accessed the site via a mobile device. That is a portion of its market segment that is ripe for picking.
The issue now is whether Facebook can keep its momentum going. Mobile advertising is expected to grow by 75 percent worldwide this year, and Facebook clearly intends to cash in on that. The company has been expanding its stockpile of advertising services for months.
GuruFocus rates its financial strength 7/10 and its profitability strength 5/10.
